Fintech is exploding.
It is a global industry, striving to change the future of finance.
…And the future is now. At Kurtosys, we’ve set out to cover exactly what’s happening in the financial industry the world over, one country at a time. With so many places contributing to the advancement of our digital world, each deserves their own time in the spotlight.
This time, we’ve got 3 countries to cover: Estonia, Latvia and Lithuania, which make up The Baltic States. Read on to discover exactly how these countries with such small populations are rising stars in the European fintech scene, with strategic links to Europe, Russia and the Nordics.
Let’s start in alphabetical order (as usual), shall we?
In all honesty, I had to do a bit of research about all three of these countries, but I’m certainly glad I did. I’ve uncovered some real gems. Estonia is home to 2,222 islands, and its capital, Tallinn, is the most well preserved medieval city in Northern Europe (for all of you history buffs) containing not one, but two UNESCO World Heritage sites. What’s more, Estonian couples won the Wife Carrying World Championships for 11 consecutive years. Bet you didn’t know that. Bear in mind that Estonia is home to only 1.3million people. When we said that Australia was punching way above its weight…
Tallinn: Tech City
How would the landscape of communication look without Skype? The mammoth calling service was invented in Tallinn, as well as Kazaa, a popular music service. In 2005, Tallinn got its first high-tech venture capital firm, and things have only been on the up since then.
The New York Times reported about Tallinn’s growing tech scene way back in 2005, attempting to discover exactly why the country was the perfect atmosphere for startups, and attracting the welcome attention of foreign investment. Linnar Viik, a founder and member of many tech companies and a nurturer of startups, commented on the nation’s youthful and energetic nature, attempting to bring itself to the forefront of the modern world after freedom from Soviet oppression.
Jann Tallinn, who wrote much of the code that makes up Skype and Kazaa, notes that ”People here are kind of introverted and into technology […] we have long, cold winters when there isn’t much to do, so it makes sense.” A generalisation? Perhaps, but it seems that the success of Skype seemed to be the catalyst for technology within all sectors to flourish, particularly mobile payments of all kinds, from parking to taxes. The Institute of Cybernetics, built in Tallinn during Soviet rule, remains a centre for many tech firms as a computer-science powerhouse.
Even the country’s second largest city, Tartu, is on the rise as a technological superpower. As The Contriber notes, “dozens” of new ventures raised money for startups, and the city hosted over 60 startup events in 2016, attended by roughly 2,600 people. It contains office spaces SPARK and sTARTUp Hub, strengthening Tartu’s tech community alongside its University, which is home to the Idea Lab pre-incubation programme. Think of Tallinn and Tartu as the technological Blues Brothers.
Facing the Facts
The Economist is strong in its claims, stating that Estonia is possibly “the world’s most digitised bureaucracy”, with an extremely online-savvy population. But is that a surprise when you consider that Estonia boasts the most start-ups per person in the world? That’s an insane statistic, and MarketWatch named Estonia “the most technologically advanced country in the world” too. Guess what? The country also houses the Cyber Security Centre of NATO and the IT agency of the EU, and programming is part of the curriculum in some primary schools. It sounds like something out of a sci-fi movie, but I guess that makes Estonia one of the coolest tech-savvy countries globally, in a nerdy way.
Out of the €21.6m ($28.6m) of venture capital that was invested in Estonia in 2012, nearly €18m was foreign investment. In 2015, €97.8m was invested in Estonian startups. How’s that for growth? As one report notes, here’s the breakdown of European investment in 2016:
- 1% of all the identified investors are from the UK (20 investors)
- 9% from France (3 investors)
- 9% from Finland (3 investors)
- 4% from Germany (2 investors)
- 4% from Austria (2 investors)
- 4% from Latvia (2 investors)
- 7% from Switzerland (1 investor)
- and 0.7% from Poland (1 investor)
34 investors from the US were also identified.
Come and Work Here!
Whilst foreign talent is hard to attract to a place with extremely harsh winters, the Estonian government has made forward-thinking plans to bring more and more tech workers to the country, and here’s why you should leap at the chance to get there:
- There is no separate work visa. According to the e-Residency Program introduced in 2014, all you need to get going is a residency program to start work.
- You can incorporate a company online in roughly 18 minutes. Just think about how efficient that is for a second.
- Digital ID cards are used widely in Estonia; 1.2million of residents own active cards.
- In 2016, a new government fund-of-funds was issued to help Tallinn startups and invigorate the Baltic investment ecosystem.
Accelerators and Startups
The innovative ecosystem is a core group, provocatively self-nicknamed the #EstonianMafia due to their disruption of various industries. I didn’t hashtag that myself, it is an actual thing, and the reason for why Estonia’s fintech scene is so healthy.
Here are some hubs of note:
Buildit – Founded in Tartu in 2014, it has 26 startups in the hardware and creative industries. It is also connected to 95+ business angels and 50+ venture capital funds in Europe and the US including Accel, Index Ventures, Balderton, Google Ventures, and Wellington.
VUNK – Situated in Tallinn, it is a lab for IoT, communication and mobile commerce startups. VUNK is run by Telia Eesti, one of the largest telecommunication companies in the Baltic states, in partnership with Startup Wise Guys and Garage48.
Startup Wise Guys – Based in Tallinn, it focuses on B2B and SaaS companies, and is a leading startup accelerator in Europe. More than 60% of their companies are not from Estonia. The founders are from over 30 countries and the network mentors, investors, and partners come from all over the world. It is the first accelerator to expand to Riga (we’ll look at Latvia shortly!)
UK-Estonia Techlink – Based in the British Embassy in Tallinn, it does what it says on the tin. No sector is excluded by these guys, but there is a focus on fintech and cyber security.
And some successful startups:
TransferWise – Founded in 2010 by former Skype employees Kristo Käärmann (Exec Founder) and Taavet Henrikus (CEO), this company focuses on the sending of money abroad. It has a group of big-time investors including Virgin. It is based in the UK with roughly a $1 billion evaluation (a unicorn!)
Fortumo – Based in Tartu, and founded in 2007 by Rain Rannu, Martin Koppel (CEO) and Veljo Otsason. It is a mobile payments platform connected with 94 countries and 350 mobile operator networks, and partners with Google and Microsoft among others.
EveryPay – Founded in 2012 in Tallinn, it is a payment gateway (credit and debit card digital processing), and supplies technical solutions to businesses in various sectors including financial services.
So that’s Estonian fintech: a big fish from a small pond.
Latvia: From Forests to Fintech
Moving away from its agricultural past, Latvia is also helping to carry the fintech torch in the Baltic region. Over a third of the country is populated by forest, and it is also a country believed to be home to the tallest women in the world, hence the highest rate of fashion models. In addition, it was the birthplace of DJ Lethal of Limp Bizkit fame – remember them?
In all seriousness though, fintech in Latvia is a big deal. The transaction value in the fintech market was US$745m in 2016, and the largest market is digital payments, with a transaction value of US$708m in the same year. Highly impressive.
It similarly boasts a thriving startup community. Even on the homepage of Latvia.eu is a link to the country’s innovation gateway Labs of Latvia. The Latvian Startup Association is a community of startups, co-working spaces and individual and institutional investors, and as their websites outlines, the attitude towards Latvian innovation is positive due to the country’s “reasonable startup costs, access to international entrepreneurial talent and capital, startup friendly regulation and excellent geographical connections.”
In April 2015, the leading private bank in Latvia, Rietumu, collaborated with TechHub Riga to further the development of Latvian financial technology. This is mostly achieved through the hosting of events and FinTech Club meetings to discuss fintech and its growth potential. It has since hosted the Rietumu FinTech Challenge, offering the opportunity for startups to attract funding.
Here are some notable Latvian fintech startups:
BitFury – This blockchain technology company, founded by Valery Vavilov (CEO) and Valery Nebesny (CTO), develops software and hardware solutions to transfer assets (digitised and secure payments) across blockchain.
Mintos – Founded in 2014 by Martins Valters (CFO) and Martins Sulte (CEO), this P2P startup allows for borrowers to crowdfund their loans. Lenders receive a guaranteed 13% return, and the company already boasts 16000+ registered investors from 50 countries. Skillion Ventures invested €1,000,000 in Mintos.
Monea – Founded in 2015, Monea is already integrated with four banks (Swedbank, SEB, Citadele and Nordea) and its valuation is €4m. The service allows the user to transfer money to friends by searching names in a phonebook. The oldest registered user is 76 – fintech is clearly not the millennial-centric business we all believe it to be!
Swipe – Swipe enables the lending of invoices to phone and email, avoiding the interference of internet banking. It was founded in 2015 and a finalist at the aforementioned Rietumu Fintech Challenge.
Looking Ahead in Lithuania
Lying just South of Latvia is the Baltic region’s largest and most populous country: Lithuania. As well as being a successful nation of basketball players, Lithuania has its own brand of perfume: ‘The Scent of Lithuania’, as well as a statue of Frank Zappa in its capital, Vilnius, the only capital city you can fly a hot air balloon over. It is also famed for its abundance of white storks, its national animal, besides being number one globally for its communications technology infrastructure.
Vilnius has become a bit of a hot bed for technological innovation. Barclays, the UK bank, has one of its four strategic engineering centres – Barclays Technology Centre (BTC) Lithuania – situated in the capital, which aims to develop technological and software solutions. The Barclays Rise innovation programme, similar to the communities in Estonia and Latvia, aims to bring together startups and industry leaders. Rise Vilnius already exists as a purpose-built workspace to engage and develop the financial services and insurance markets.
On top of that, the Bank of Lithuania continues to introduce new financial regulations in one of the world’s most forward-thinking business frameworks. You can find a detailed list of proposals here, “but here’s something I made earlier”:
- Specialised bank licenses are to come into effect in 2017. As the financial supervisory authority in Lithuania, the Bank can issue a license to payment and electronic money institutions within three months.
- This time period is five to nine months shorter than in other EU Member States!
- Payment and electronic money institutions can join the SEPA payment infrastructure and customers can have personal national codes for IBAN accounts. Lithuania is the first country in Europe to adopt such an infrastructure for payment and electronic money institutions.
- A Draft Law on Crowdfunding was introduced in December 2016, allowing investors to be able to freely invest up to €1,000 through a single crowdfunding platform over a 12-month period.
The Transaction Value in the fintech market amounted to US$1,182m in 2016, exceeding that impressive amount set by its neighbour. By 2020, it is expected that 1.9 million people will be digital payment users. For more information, here’s a nifty Lithuanian fintech infographic.
Two global fintech companies are also jumping onto the Lithuanian fintech phenomenon. Moneta International, a company specialising in payment services for the e-commerce sector, has established its global HQ in Vilnius, intending to invest more than €1m into its Lithuania operations. Revolut is a social network money lending service which has established a financial institution in Lithuania also. It has signed a memorandum with the Bank of Lithuania, which will give it access to bank-managed payment systems to allow cross-border payments. It is a UK-based company founded in 2015.
Additionally, Betafunding is an accelerator founded in 2014 and based in Vilnius and London, exposing startups to investors from an early stage and SmartFlow is a cash flow forecasting service, allowing for users to follow prospective bank account balances. Everyone seems to be working in harmony in Lithuania, with Vilnius as the prospective pinnacle of innovation.
So there you have it. One article, three countries. That’s a lot of information!
Have any thoughts about fintech in the Baltic States? Let us know in the comments below, or you can tweet us.
Who will be under the fintech microscope next time? Check back soon for more episodes of the Fintech World Series!